Among financial topics, life insurance stands out as one of the least favorite for people to address. We’re thinking about death – our own or our loved ones’ – and that is decidedly gloomy. But it’s also difficult because this is an area where needless complexity has seeped into the buying decision: Should we buy whole-life, or term? How long will I need insurance? How much coverage do I really need?

The good news is that getting the right life insurance coverage is possible and it doesn’t have to be expensive or complex. Peloton doesn’t sell insurance, but we commonly advise our clients on obtaining the right level of coverage.

Following these three principles will help achieve coverage that’s appropriate for you:

Principle #1: Life insurance is to protect against risk of early death; it’s not a savings vehicle

“Term” life insurance is coverage for a specific length – or term – of time. “Whole” or “permanent” insurance can stay in force for a person’s entire life.  Since people are not nearly as likely to die when they’re 40 as when they’re 90, it follows that the cost of having life coverage is much more expensive for older customers than younger. In order to offer cost-effective, permanent insurance, insurance companies make younger customers pay more than they need to initially. If the insurance is not needed, they are told, the “cash value” can be borrowed from the policy, or the policy can be cancelled and the cash taken out.

If you can’t save money unless someone forces you to do so, then maybe permanent insurance is the best bet. But you must know that the cost of doing so is very high, and gaining access to your own cash savings will come with additional fees, taxes, or both. For this reason, we believe that it’s far better for you to purchase insurance in order to insure against risk, and find smarter ways to save your money.

Principle #2: Buy life insurance only for the term you need the coverage

Life insurance is not a need until the point when the loss of your life would cause long-term financial harm to those who depend on you. If you’re single, you probably don’t need life insurance. If you’re married and your spouse is working, you may  not need life insurance. If you have children, or your spouse is not working or is under-employed, life insurance becomes a wise choice.

When children live at home, and until your investments accumulate to a level where they replace your need for insurance, are two examples of time periods where life insurance is very helpful. We often recommend 10 or 20 year term life policies to make sure that the time when financial risk from death is greatest – is covered.

Principle #3: Get enough coverage to fund your wishes for your beneficiaries

“Beneficiaries” are the recipients of the life insurance proceeds when you die. It may be helpful to think of two extreme examples of coverage amounts. Taking the bare minimum approach, you could purchase coverage sufficient to pay for your own funeral and burial – $25,000 would be enough in this case. On the other hand, if you want to provide your beneficiaries with a replacement for all of your income forever, you would need to buy a far larger amount. In this case, the easy rule of thumb is to divide your income by 4%. Four percent is a simple estimate of a sustainable annual withdrawal amount. For example: a parent who wishes to replace all of her $100,000 income would buy $100,000 / 0.04 = $2,500,000 of life insurance.

There are also many middle of the road options. You may prefer to make sure your mortgage is paid off, or fund a college education for your children. With a little planning and these principles top of mind, you can determine the right amount of insurance coverage for you.